Jeff Stoffer took the road less traveled on his journey to becoming a financial planner. Following his degree in Cultural Anthropology (B.A. University of California, Berkeley), Jeff ventured into ... read more

People tend to embrace this statement. It sounds true: surely only shallow, materialistic people would insist that money could buy happiness. To utter the thought aloud is almost like a declaration that we aren’t materialistic (and hopefully not shallow!)

Scientists have long been perplexed about how to measure such a thing as happiness. Studies that examine relationships between money and happiness raise the idea that although money may not directly bring us happiness beyond taking care of our basic needs, it has the potential to add peripheral benefits that can lead to more happiness.

Believing that money can’t buy happiness is a bold and sweeping generalization that weakens under scrutiny. I’m reminded of the book, Your Money or Your Life in which the authors present a “fulfillment curve.” As the curve in the diagram shows, money spent to meet basic needs brings the most precipitous rise in satisfaction. It makes sense—I never cease to be amazed how great food tastes when I’m really hungry! People get another boost of satisfaction from the purchase of comforts, and then another from buying some luxuries. However, at some point an additional purchase does not make us any happier; we have ‘enough’ and that is where the top of the curve begins to descend. Here fulfillment begins to decline and spending actually feels less good. I remember drinking a $12 Diet Coke from a mini bar in New York and it definitely did not taste as good as the one I pull from the fridge at home (which costs less than $1).

In Part I of this series we discussed how we humans, generally, don’t predict our own happiness very well, because of the process of adaptation. After buying a car, we find that after a short while the purchase becomes ‘ordinary’ as we have adapted to having it in our lives. Any happiness associated with it is transitory.

On the other hand, we discussed how money can help pay for new experiences, which create lasting memories, and which can contribute to our overall life satisfaction. And in his 2015 presentation Michael Finke, Professor of Retirement Planning at Texas Tech University, makes the case that higher income is associated with better health. This leads to more social engagement and mobility in retirement, which has a direct correlation with happiness among older people.

But what is happiness, anyway? One of the challenges in evaluating happiness is in its definition. Two different aspects of subjective well-being: emotional well-being (happiness in the moment), and the more commonly used metric, life evaluation, are the basis for a survey that Danial Kahneman and Angus Deaton discuss in an article for PNAS. Their conclusion: “High income buys life satisfaction but not happiness, and that low income is associated both with low life evaluation and low emotional well-being.” Emotional well-being is affected by increases in income up to ~$75,000 annually (a relative number adjusted for circumstance), beyond which there is no further benefit.

In a Princeton University study of women and life satisfaction, Miron-Shatz found a correlation between financial security and happiness.

“Even if you are making a hundred grand a year, if you are constantly worried that you are going to get fired, that you are going to lose your health insurance or that you are simply not sure you are going to ‘make it,’ you are not going to be happy.”

She found this to be true for women in any income bracket.

I see this often in my own clients. They are not seeking happiness from their money so much as wanting it to deliver security. They want to feel confident and secure about their future, in order to feel more relaxed in the present. At a minimum happiness seems to be correlated with having the money to tend to our basic needs. A healthy lifestyle—with basic needs met—allows us to take advantage of opportunities to increase our happiness further. Financial security lets us be more present in the moment…and happier.

How our money can deliver financial security is fodder for another article!